Berko: Sell Ford, GM stock before losses get even heftier

Dear Mr. Berko: Last November, you told me not to buy General Motors or Ford stock. Well, my stockbroker — whose father, after 31 years, still works for GM — has a love-hate relationship with your columns. He told me that you’re nuts and that his company, Morgan Stanley, was recommending both stocks. So I bought 300 shares of GM at $34.03 and 700 shares of Ford at $13.90, investing about $10,000 in each. And I was pleased because both stocks went higher shortly afterward. But now I am losing on both stocks and wondering whether you were right and I should sell.

I’m also interested in buying stock in a company that is developing a driverless car, which I think is the future. I know that Ford, Apple, Google and others are involved and would like your opinion on investing in their technology.

— S.H., Detroit

Dear S.H.: I’m sure your broker is a swell guy; however, his opinion on auto stocks could be influenced by his father’s long-term relationship with GM. Be aware that his father’s GM paychecks have put food on the table, made the mortgage payments and probably paid for your broker’s college education. And know that reciprocity is an important consequence of loyalty.

Sell your 300 shares of General Motors (GM-$30.84), even though the stock pays 4.7 percent, and sell your Ford (F-$12.91) stock, which yields 4.8 percent. Take your $2,000 in losses. You’ll be glad you did, because those losses could double in the coming dozen months. Even though Piper Jaffray, Morgan Stanley, Goldman Sachs, S&P Capital IQ, Thomson Reuters and Argus Financial Services have “outperform” ratings, I urge you to eliminate both stocks from your account. A year from now, you may look back at both issues, which could be 25 to 30 percent lower, and ask, “Why did Goldman and others recommend those stocks?” The answer is: Either they’re wrong or they have ongoing financial arrangements with GM and Ford, and a negative recommendation would cause them to lose investment banking fees — and that’s wrong, too.

Do you realize that the American consumer is tapped out and two-thirds of American households earning between $50,000 and $100,000 would have difficulty coming up with $1,000 to cover an emergency? Many consumers live payday to payday, are financially illiterate, lack the discipline to improve themselves and have woefully inadequate retirement savings. The consumer is flat-butt broke!

New car prices are averaging a record $34,000, and most consumers can’t afford the additional or higher monthly payments, which might put them in a chokehold. So this year — or certainly next year — I expect the Big Two to report lower revenues and lower earnings. I also believe that the share prices of GM and Ford will move lower and that there’s a possibility their boards will recommend a dividend cut in early 2018.

Ford is going it alone (big mistake) and expects to be selling a driverless car by 2021. Alphabet’s drivers have logged 1.7 million miles in autonomous vehicles in five states, and now Google’s parent company is teaming up with Fiat Chrysler to put the technology in 100 minivans. Apple is also investing some big bucks in this technology and has teamed with Uber. They are covertly working on a driverless car that they hope will be on the road in numbers by 2020. AAPL won’t succeed. GM is investing $500 million (plus more next year) and is teaming with Lyft, whose services rival Uber’s. Tesla’s wacky Elon Musk, who always needs a few extra billion dollars to cover continuing billions of losses, tells investors that he’ll build an electric autonomous vehicle.

I think the introduction of the driverless car will have about as much impact on the auto industry as would the advent of another fly to a slaughterhouse. The tornadic buzz surrounding the driverless car reminds me of the premature anticipation when Apple introduced the Apple Watch. High excitement, tremendous hype, deep passion, enormous enthusiasm and frantic hoopla. In the end, it will be an ignominious failure; the consumer won’t buy it, and the involved companies will lose multiple billions of dollars. Nobody wants a car that takes a week to go from zero to 60. I’d rather drive a Yugo.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.